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Cash Balance Plans

As retirement plan options continue to grow and evolve, new and innovative solutions are required. With the rise in popularity of Cash Balance Pension Plans, River and Mercantile Solutions has developed customizable investment solutions to meet your Cash Balance Plan needs.Cash balance plans are designed to provide substantial benefits to the businesses and professional services firms that use them. Having the right investment strategy is key to the success of these plans. Traditional Cash Balance investment strategies may not be appropriate for modern-day Cash Balance Plan designs or the current interest rate environment.

For example, modern Cash Balance Plan designs often use the concept of the actual return on Plan assets to determine the interest crediting rate, as opposed to a fixed rate or a rate on a US Treasury bond. However, there is often a cap on the rate of return that can be earned annually, typically around 6%. A cap like this creates a conundrum; an investment strategy will ideally produce consistent returns close to, but not above, the cap. Returns above the cap simply reduce the amount of tax benefit that the sponsor of the Plan is able to achieve. Likewise, very poor returns could leave the sponsor on the hook for a pension deficit. River and Mercantile Solutions has designed investment strategies that seek to achieve positive consistent returns, but without taking on too much risk of generating very poor returns.

Key to the successful implementation of an investment strategy designed specifically for Cash Balance plans is having a deep understanding of the plan structure and how it will evolve over time. River and Mercantile Solutions’ roots as an actuarial consulting firm enable us to fully understand the nature of the investment problem we are trying to solve, to monitor the investment solution versus the goal it is seeking to achieve and to make appropriate adjustments as required.

Cash Balance Plans continue to come with their own unique set of advantages and obstacles. It is important for the investment strategy employed by each plan to have the tools required to meet future goals, while maintaining the flexibility to evolve as needed. River and Mercantile Solutions’ customizable investment solutions and governance process can help plans to successfully meet their long-term investment objectives.